The New South Wales Treasury has delivered a stark warning to a federal parliamentary inquiry, stating that generous capital gains tax (CGT) concessions are distorting the housing market and severely damaging affordability for first-time buyers.
Tax Concessions Skew Market Incentives
In a formal submission, officials argued that tax settings, including the 50% CGT discount and negative gearing, actively “skew incentives towards property investment.” They contend these policies undermine other government efforts, such as first home buyer assistance schemes.
The Treasury highlighted that the CGT discount alone costs the federal budget approximately $23 billion in forgone revenue annually, with around $8.7 billion of that originating from NSW. “By reducing the effective tax rate on capital gains and allowing tax deferral, the CGT discount increases after-tax returns for investors, enabling them to bid more aggressively,” the submission stated.
Investor Lending Dwarfs First Home Buyer Support
The data presented reveals a dramatic shift in lending patterns since the discount was introduced by the Howard government in 1999. In the mid-1990s, lending to investors and first home buyers was relatively comparable.
However, in the year to September 2025, the landscape had transformed drastically:
- Lending to property investors soared to $139 billion.
- Lending to first home buyers reached only $64 billion.
NSW officials told the inquiry this trend demonstrates how the tax concession amplifies investor purchasing power, compounding affordability pressures for ordinary Australians.
Mounting Pressure for Policy Reform
The inquiry, led by Greens treasury spokesperson Nick McKim, is being closely monitored by the Albanese government and could ignite fresh political debate on tax reform ahead of the next election. McKim welcomed the NSW submission, stating the evidence is “abundantly clear” that the discount pushes up prices and rewards speculation.
“The Greens set up this Senate inquiry because the facts are piling up and the case is now overwhelming to wind back the most unfair tax break in the country,” McKim said.
However, Federal Treasurer Jim Chalmers has so far ruled out changes to CGT or negative gearing. The Property Council of Australia also cautioned the inquiry, arguing that altering the discount is not a “panacea for housing affordability” and could reduce new construction, potentially driving rents higher.
The inquiry is due to hold public hearings and present its final report by 17 March.
